Today, we're discussing Key Performance Indicators (KPIs) for small businesses. First, you might be wondering about the difference between metrics and KPIs. Think of metrics as a measure of performance based on industry averages, and KPIs as objective-based goals that guide future actions.
Every major player in e-commerce uses various KPIs to reach specific company goals. That makes them essential to use for any business of any size looking to grow. So, how do you set a KPI? Start by factoring in your industry, your company's growth, and how these goals fit into your business plan. Next, set SMART goals that are:
- Specific
- Measurable
- Achievable
- Relevant
- Time-Bound
Start by factoring in your industry, how established your company is, and how these goals fit into your business plan.
With a plan in place, let's move forward by covering the best e-commerce KPIs for small businesses.
1. Conversion Rate
The first e-commerce KPI you want to track is your conversion rate. If you're hearing this term for the first time, the most common conversion goal for small businesses is when a visitor completes a purchase. While percentages vary from industry to industry, the average conversion rate in e-commerce is 2.17%, but it differs on marketplaces like Amazon.
You can calculate your conversion rate by dividing the number of sales (conversions) by your number of site visitors. You can also find your Amazon or Walmart Marketplace conversion rate on your seller dashboard or Google Analytics.
You can calculate your conversion rate by dividing the number of sales (conversions) by your number of site visitors. You can also find your Amazon or Walmart Marketplace conversion rate on your seller dashboard or Google Analytics.
Here are a few ways to increase your e-commerce conversion rate quickly:
- Offer free shipping
- Use an automated repricing platform
- Increase your seller rating
- Run promo offers
- Optimize your listings
2. Shopping Cart Abandonment Rate
Suppose a shopper browses for clothing on your website. They find something they like, add the item to their cart, but do not complete the checkout process. In that case, they're affecting your shopping cart abandonment rate negatively.
Baymard Institute reported the average cart abandonment rate for e-commerce businesses is 69.82%. That percentage is based on the number of completed purchases divided by shopping cart abandonments. If you’re not making that percentage, make the industry average your KPI.
Monitoring this KPI is important because it helps e-commerce managers understand online shoppers' behavior when they're about to convert and why they did or didn't. For example, do your leads fail to convert after reaching a certain point in the checkout process? Or, are they making it through their purchasing decision quickly? Monitoring allows you to get answers to these questions, which can lead to improving this KPI.
How do you improve your shopping cart abandonment rate? Here are three sure-fire ways to capture indecisive shoppers.
- Improve the Checkout Process: Review your checkout page and find areas that prevent shoppers from converting. For example, look at completed forms to see if simplification is needed. Alternatively, run a survey asking your customers about their checkout experience.
- Use an Exit Pop-Up: These are simple messages that pop up when a shopper is about to leave your checkout page. They can include an offer or a simple message enticing them to convert.
- Abandoned Cart Emails: These automated emails are purchasing reminders triggered four hours after a shopper abandons a cart.
3. Average Order Value (AOV)
Your Average Order Value (AOV) represents the average dollar amount spent every time a customer converts. Therefore, knowing your AOV often answers plenty of questions in terms of shopping behavior that could entice sales.
The average AOV for e-commerce businesses varies based on several factors, including your industry, growth projections, and other influences. To calculate your company's average order value, divide your total revenue by the number of orders placed.
Need to increase your AOV? Perhaps you are struggling with out-of-stock products or inventory turnover. If so, use an automated inventory management tool. Could you increase sales by offering your customers more? Consider adding bundles or multipacks.
Both tactics increase your chances of capturing the buy button. If you're interested in exploring other ways to increase your AOV, give our platform a try by enrolling in a free 14-day trial.
4. Inventory Turnover Ratio (ITR)
Keeping an eye on your Inventory Turnover Ratio (ITR) allows you to track product sales, improve marketing, and may prevent you from losing conversions by keeping high-selling merchandise stocked. ITR is also crucial to pay attention to if you’re managing multiple online storefronts on different platforms, where inventory numbers need alignment across every platform.
You can calculate your ITR by dividing your cost of goods sold from the average inventory moved within the same period. Keep in mind that:
- High Inventory Turnover Rate = Strong Sales
- Low Inventory Turnover Rate = Weak Sales
We know that keeping up with various storefronts can be challenging. This is why we provide a straightforward solution by offering an inventory management tool that automatically syncs stock quantities across every one of your channels.
5. Customer Lifetime Value (CLTV)
"Knowing how much revenue a customer generates over his/her lifetime can help you invest in the right channels sooner," says Troy Fawkes of Delta Growth. The average Customer Lifetime Value (CLTV) for e-commerce businesses varies depending on your industry and the price of products sold. For example, the average CLTV of a tea brand is $55.
You can find your average CLTV on most e-commerce platforms like Shopify and Amazon. If you have trouble finding it, you can also calculate the average order value and multiply it by the average purchase number in the same period. As a KPI, start by increasing your CLTV by 10%.
Remember that out-of-stock products, uncompetitive pricing, lack of customer loyalty, and other factors impact whether a customer returns or not. That's why we offer a platform that provides automated repricing, inventory management, and other essential features that help e-commerce managers reach their KPIs.
Want to learn more about how we can help you reach your e-commerce KPIs as a small business? Start a free 14-day trial of our service today to get started.
